Using EDI to Manage Vendor Compliance and a Case Study of an Inbound Management System - Part 2: The State of the Marketplace

Although supply chain automation technologies have been with us for almost half a century, we still find a very large part of supply chains within today’s businesses to not be vendor compliant. Having taken a look at the need for vendor compliance, we can see that this is due to the lack of proper automation and integration both on the part of both an retailers and its vendors.

The solutions offered by most technology vendors are very costly and lack the robust automation needed to handle organizations of different sizes and their trading needs.  Moreover, they often do not provide the necessary level of automation and integration in order to allow vendors to provide accurate and timely information to retailers .

In previous posts we have stated the merits and benefits derived from EDI implementations in terms of providing a supply chain with automation, integration and collaboration. Similarly, EDI is one of the most robust and best-in-class ways of achieving good vendor compliance.

The Benefits of a Well-Executed Vendor Compliance Program:

In order for a retailer and its vendor community to have a best-in-class vendor compliance program, the complete order-to-cash supply chain process has to be looked at and streamlined.

This may seem simple and straightforward. However, to achieve this requires that the entire lifecycle of the order-to-cash process be properly automated. That is, the complete process, from the issuance of a purchase order to the sale of the item, must be fully automated and integrated all the way down the line.

There are organizations that have hundreds of millions of dollars invested in supporting an operation that provides for a properly functioning fulfillment process. If vendor compliance in not properly planned across all the members of the supply chain, the resultant outcome will be that of a poor supply chain that ultimately brings financial losses to the retailer and its vendor community. This is certainly to be avoided.

The goal is to develop a well-planned and implemented vendor compliance program that will result in a highly compliant supply chain operation for both the retailer and the vendor, which is free of fines or fees associated with non-compliance. The following outlines the lifecycle of vendor compliance which works to this end.

Review and analyze the above 5 stages to ensure that all the vendor compliance criteria have been met.

If any of the compliance criteria was not met, then improvements and corrections have to be made in order to fix the broken part of the vendor compliance process.

Without the proper level of automation and integration of the seven above vendor compliance life-cycle events, vendor compliance is not possible. This will result in problems for the retailer and/or the vendor community. These problems could also sometimes spell the demise of a business.

In our next post, we’ll take a look at a case study of a large retailer that is using EDI to create a best-in-class, fully integrated, automated vendor compliance process.

Using EDI to Manage Vendor Compliance and a Case Study of an Inbound Management System - Part 1: The Need for Compliance

Introduction:

Over the past few months we have been discussing EDI in some detail, starting with the history and ongoing usefulness of EDI and more recently the importance of integration planning in B2B EDI projects. Today, we’re starting a series discussing the benefits of using EDI to manage vendor compliance. To complement this discussion, in a subsequent post, we will be presenting a case study of a Tier 1 Canadian retailer that realized substantial benefits through an automated and integrated vendor compliance program, known specifically as an Inbound Management System. 

Essentially, vendor compliance allows businesses to collaborate with their various vendor communities of trading partners to obtain end-to-end visibility, with a highly responsive and accurate supply chain operation. An automated and integrated vendor compliance program eliminates all of the non-compliant aspects of a supply chain and helps to achieve a highly vendor compliant operation both for the retailer and its trading communities. This results in millions of dollars being saved by the vendor communities through the avoidance of compliance fee charges levied by the retailer. In addition to the huge financial benefits, a highly vendor compliant operation also increases the speed and accuracy in the entire order-to-cash process.

The Need for Compliance:

Bottom Line: Organizations that implement good merchandise compliance programs benefit from having a very responsive, timely, accurate and satisfied relationship with their vendors. Vendor –compliant trading environments help the vendor community in eliminating compliance fees and other penalties. If this community can reduce and/or eliminate the problems of incorrect and untimely merchandise shipments, everyone wins.

A compliant trading environment helps the retailer sustain profitability and remain in business as a result of a compliant supply chain. One which is responsive to the need of its customers and can provide its customers with customer service that is responsive to customer needs.

With the proper use of EDI and other non-EDI automation technology implementation for vendor compliance, the retailer and its vendor community will benefit from the following;

These are only some of the benefits; there are literally endless benefits that a well implemented vendor compliance program can provide.

The best-in-class companies are those that have the most successful vendor compliance programs that substantially reduce errors and problems in the supply chain. The errors and problems that a good vendor compliant program eliminate are;

Any one of these problems can make a good company lose money, reputation and market share. 

This is why Best-In-Class companies are reaping the benefits of well thought out vendor compliance programs. Next time we will take a look at the state of the vendor compliance market place and assess the benefits of a well-executed vendor compliance program, an Inbound Management System, in more detail.

The Importance of Integration Planning in B2B EDI Supply Chain Projects – Part 4, Closing Thoughts

CONCLUSION:

As we have seen over the course of this series on the importance of integration planning in B2B EDI projects, a properly planned integration architecture can provide all the members of a supply chain community with a highly efficient overall trading platform. It can also provide them with a significant competitive advantage. This is really a key secret of very successful organizations today; and this is something that the successful organizations will not openly share with you.

The truth of the matter is that enjoying a BEST-in-CLASS supply chain status, is far less complex an undertaking than it first appears. All one needs to do is to ensure that the proper integration planning is done, by automating the supply chain transactions in an order and manner that will result in an operating environment that will be collaborative.

The secret is simplicity and conciseness of structure. Remove as many of, if not all of the in-between and/or redundant processes from the supply chain and directly integrate with the supply chain systems to achieve “Collaborative End to End Visibility and Collaborative End to End Responsiveness”.

Let us conclude with what we mean by “automating the supply chain transactions in an order and manner that will result in an operating environment that will be collaborative.” Once a process is created for basic purchasing transactions, it can be used to share critical planning and status information. This information can include sales activity, forecasts, inventory positions and work-in-process and shipment statuses. Moreover, this information can be shared daily or weekly or even in real-time for certain processes, versus monthly or quarterly, creating leaner and more synchronized processes.

The Importance of Integration Planning in B2B EDI Supply Chain Projects – Part 3, Properly Planned Processes

With proper EDI integration planning, the fulfillment process can be substantially streamlined, such that both the retailer and vendor achieve accurate, direct and real-time data within their supply chain systems. This type of integration planning removes, at a minimum, twice the number of redundant processes that are required to have a very responsive and visible fulfillment process.

Once proper integration planning is implemented, the data and information that is exchanged between the two parties at each end removes all  redundant and un-necessary processes resulting in a simplified fulfillment process that follows the following business process;

1. PO sent directly into the vendor’s system.
2. Vendor picks, packs and ships the PO.
3. Vendor sends the order to the retailer systems.
4. Retailer does a match of the PO and the shipment and makes the payment.

The example from our previous post implies that the flow of data and information is occurring between the key data points that are being updated directly without having to go through any in-between processes. This example shows how proper integration planning can streamline an organization’s EDI processes, resulting in substantial improvements both for the retailer and the vendor.

Also note that the example represents a process called an “Evaluated Receipt Settlement” or (ERS). ERS eliminates the need for an invoice and subsequent cheques, and all of the related processes around invoice and payment management.

Other Supply Chain Processes:

You have seen above an outline of a fulfillment process and how it can flow seamlessly with proper integration planning. Similarly, all other supply chain processes can benefit from proper integration planning.

These processes are;

• Manufacturing and Product Lifecycle Management;
• Logistics and Transportation;
• Reverse Logistics;
• Inventory and Warehouse Management;
• Inventory and Store Management;
• Forecasting and Replenishment;
• Business Intelligence and Data Analytics;
• Dashboard / Scorecard for a Business’s Operational Metrics & KPI’s;
• Dashboard /Scorecard for a Business’s Execution Metrics & KPI’s;
• HR Management for Logistics Management.
• HR Management for Warehousing and Distribution Facility Management;
• HR Management for Store Management.

One can see from the above list of key supply chain processes that there are potentially many components within an organization’s supply chain that can be automated. With proper automation and integration planning, each of these components together can work to deliver a BEST-IN-CLASS supply chain operation. This is ideally what an organization strives to achieve.

We’ll conclude this series in our next post by summing up and drawing connections between the key concepts that we have been discussing.

Stay Tuned!

The Importance of Integration Planning in B2B EDI Supply Chain Projects – Part 2, Optimal Integration Process

We know that we can’t adequately integrate anything – all the way from ingredients in a recipe to disparate systems within connected business processes – without planning. It’s just impossible. But knowing that you need to plan and understanding the process are two different things. In this post, we’ll discuss the process of integration planning and how to ensure that your process is optimized.

An Optimal and Powerful Process Outline:

Successful integration planning will achieve the removal of all of the unnecessary or redundant systems (see previous post) that consume/waste a tremendous amount of resources and play a major part in slowing down supply chain processes. It is this redundancy which is responsible for making supply chain processes cumbersome, error-prone, very difficult to manage and administer and, ultimately wasteful.

The redundant and completely unnecessary processes that must be removed from the supply chain operation were also discussed in our previous post.

The following outlines an example of a properly planned and designed integrated supply chain operation. This encompasses not only the integration planning process (that is, the planning of the actual integration phase), but also (and perhaps most importantly) the pre-integration planning process which must be considered and completed first.

Pre-Integration Planning Process:

Integration Planning Process:

In summary, unless the proper automation and the proper integration are implemented, many, if not all of the key business activities cannot be improved, as any and all collaboration with external and internal users and systems will not be accurate and timely. 

In our next post, we’ll look at how integration planning applies to a retailer’s supply chain process, what waste there may be, and we’ll describe a hypothetical example of a properly implemented integration plan.

The Importance of Integration Planning in B2B EDI Supply Chain Projects – Part 1, An Overview

Preamble:

Before we discuss the importance of Integration Planning in B2B EDI Supply Chain Projects, let’s quickly review the information we provided in our previous series of blogs on, “The Ongoing relevance of EDI” or “Why EDI is still relevant”.

In the last series of posts, we discussed EDI from a historical perspective, the current state and the future use of EDI in supply chain, how EDI costs have significantly decreased over time and how the proper use of EDI has resulted in transformational business and process improvements in supply chain for all organizations that use it as part of their overall supply chain management infrastructure. These organizations have continued to substantially improve in a highly cost effective manner as their overall EDI operations have become entrenched as a core foundational component their supply chain Infrastructure.

That having been said, there is an important factor which is critical to using EDI optimally which must be considered – integration planning. Without properly planning how EDI will integrate across the supply chain, it is impossible to consider an implementation to be “Best-in-Class.” Over the next 4 posts, we will explore integration planning for B2B EDI supply chain initiatives including examining what optimal plans and processes should look like.

The Promise of Integration Planning:

The secret of achieving a highly successful supply chain operation is the achievement of “Collaborative End-to-End Visibility” and “Collaborative End-to-End Responsiveness.” This visibility and responsiveness cannot be achieved without effective integration planning. A well-integrated operation will result in a highly effective and responsive business operation, both from an execution and administrative perspective.

The benefit of a properly automated and integrated supply chain operation is the ability to involve and collaborate with customers and suppliers to:

These are only an example of key benefits - there are literally endless benefits that an organization and its trading communities achieve with a properly automated supply chain.

The key ingredient (and we would be inclined to say that the ONLY ingredient) that is absolutely mandatory for a highly effective supply chain is in integration planning and execution. Without a properly integrated supply chain, collaboration cannot occur. Without proper collaborative processes, an organization cannot have a meaningful nor effective operation to deal with its trading communities.

A BEST-In-CLASS Integration Plan:

In order to achieve highly collaborative supply chain processes that will provide end-to-end visibility and the desired responsiveness, one must remove/eliminate as many in-between and redundant processes from the supply chain. These unnecessary data points are the processes that have to do with but not limited to;

As we can see, there are many points to consider when embarking on an integration planning process for a B2B EDI supply chain initiative. In our next post, we’ll look at optimizing the process outline as well as what pre-integration and integration planning processes should look like. 

The Ongoing Relevance of EDI Part 4 – EDI's Impact on Business; A Conclusion

The Revenue Impact of EDI:

Both average and best-in-class implementations of EDI have resulted in substantial revenue gains for businesses.  Revenue gains are proportional to the degree to which EDI has been implemented across all business operations, both for internal processes and processes that deal with external stakeholders and trading communities.

The cost budget analysis which we discussed in our previous post, only represents EDI implemented for the basic fulfillment (order, pick, pack & ship) aspects of a business. The basic EDI represented in our last post is related to the following base supply chain transactions; purchase order (EDI 850), purchase order change (EDI 860), product information (EDI 832), invoice (EDI 810), advance ship notice/manifest (EDI 856), the remittance advice (EDI 820) and acknowledgement(s) (EDI 997).

The additional revenue impact that an organization could expect would be in the range of 5% to 30%. So, the benefits of a good EDI program can have transformational change to an organization measured as both costs and revenue.  These benefits are only increasing with the advancements that are being made to EDI.

RESULTS OF SOME RECENT EDI SUPPLY CHAIN STUDIES:

Below are the findings of select North American studies. The study groups were formed from a large representation of organizations in the retail and CPG industry.

The two summary findings are for:

1. Industry measured statistics related to EDI/B2B improvement metrics.

2. Best-in-Class performance of companies.

Industry Measured Statistics related to EDI Improvement Metrics

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% Improvement of Core-Business Metrics in Best-in-Class EDI Implementations | Create infographics

CONCLUSION:

From this high level information, one can witness the transformational nature of a well implemented EDI program. The costs and revenue information provided in this article are only a baseline measure of an EDI program.

In order for an organization to further improve its cost and increase its revenues and service levels, an organization has to further automate and integrate EDI across all its other information, with EDI being the base technology to create an operating and service environment that is highly collaborative in nature. Without the collaborative Implementation, an organization will not operate in the most efficient manner.

In the Internet and mobile age, information is being generated and is growing at an exponential and uncontrolled manner. In order for organizations to deal with these oceans of data in a meaningful, disciplined, controlled and automated way only a robust standard such as EDI, can help properly harness this sea of data. EDI and its newer protocols and standards are truly an answer that are very comprehensive, robust and have proven the test of time.

EDI is now coming in to its true potential (which was simply not needed or even possible a decade or two ago); to address the immense, global expansion of data and information. Getting our hands and minds around this data requires a highly structured, disciplined and proven platform, which EDI will clearly provide for the use and benefit of coming generations.